Planning for less Chinese growth

Citing FT here (pic from NYT), but there's been a slew of stories recently in WSJ and FT on same subject:  Western companies planning for less exports to China and looking more to home markets as a result.

As one exec put it: "The problem in emerging markets for us is really isolated to China."

Here also: "... the speed of the slowdown in Chinese demand has taken companies by surprise."

This is the higher labor costs kicking in prior to the domestic consumption driver kicking in enough to compensate for it - the essence of the middle-income trap.  

Doesn't mean companies don't expect growth in China or aren't planning on it.  Just means all this hype about the Chinese economy ruling all is rapidly dissipating.

Chart of the day: remittance "corridors"

From the Economist.

I just love global maps indicating flows - naturally.

What do we see here?

Per my vernacular, in sheer volumen we see New Core being fed remittances by expats living in Old Core.  But when it comes to countries relying heavily on remittances as percentage of GDP, it tends to be mostly Old/some New Core and it all pretty much goes to Gap countries.

Per my flow concept:  whatever the resource, it flows from regions where it is plentiful (here, earning opportunities) to where it is less so.  Yes, we think of India, China, Mexico as New Core and thus "made," but all share the reality of significant numbers of rural poor.  In truth, in most New Core countries, there is massive internal remittances flows.

What I love about this:  this is the best foreign aid there is, because people use it as they see fit.  

You may say to yourself:  What a drain on Core - especially US!

Studies have shown, however, that expats living in new countries spend something like 90% of their earnings in-country, sending about 1/10th home.  It's just that those flows still number in the billions, swamping anything we do on official developmental aid.

Final column at World Politics Review

The New Rules: Globalization's Future Depends on Stable U.S.-China-India Order

BY THOMAS P.M. BARNETT | 30 APR 2012
COLUMN

Editor's note: This will be the final appearance of Thomas P.M. Barnett's "The New Rules" column at World Politics Review. We'd like to take this opportunity to thank Tom for the insightful, compelling analysis he has offered WPR readers each week for the past three years, as well as for the support he has shown for WPR over that time. We wish him continued success.  

Amid all our current fears regarding the global economy’s potential “double dip” back into deep recession, a longer-term question stands out: How can a supposedly declining America protect the golden goose that is globalization while managing the rise of twin economic superpowers in the East -- namely, China and India? History says that three is a crowd when it comes to system stability. Invariably, some conflict will arise to trigger a two-against-one dynamic that must yield to either the stable stand-off of bipolarity, as during the Cold War, or the emergence through decisive conflict of an acknowledged unipolar hegemon, as in the early post-Cold War period.

Read the entire column at World Politics Review.

Chart of the day: You can import the milk cows. The water is another story

Fascinating WSJ piece on China importing cows like crazy to build up its dairy stock.

Since 2009, China has become the world's most important buyer of dairy cows, driving up prices for calves world-wide and putting pressure on other markets such as alfalfa and bull semen. China has imported nearly 250,000 live heifers, or cows that haven't yet reproduced, since 2009, according to data tracker Global Trade Information Services. Last year it spent more than $250 million on 100,000 foreign heifers, about 25 ships worth.

China old cows were European and it has a cattle ban on North America since the mad-cow disease scare in 2003, so it's buying up stock in Australia, New Zeland - even as far as Uruguay.

Story describes the setting-up of modern American-style dairy farms (our cows outproduce the world on a per-head basis), but the trick is the amount of fresh water they require.  All the places they import these cows from are relatively water rich (more global freshwater share than population share), whereas China is 22% of the world pop with 7% of the water.

Tricky business, that.

But clearly, the attempt shows how intent China is on continuing to try and remain food self-sufficient. China won't succeed, but it'll try like all get out.

Chart of the Day: Different listing of shale gas reserves globally

Previous one I had found (and used in brief) said:

1. China 36.1 trillion cubic meters
2. US 24.4
3. Argentina 21.9
4. Mexico 19.3
5. South Africa (didn't write down because not in Pac)
6. Australia 11.2
7. Canada 11.0

Here's an old post that has similar 1-5 ranking expressed in tcf (like below), and the weird thing is, it agrees exactly with the FT numbers for China, Argentina, Mexico and South Africa but puts the US at 862.

This one, in bit FT full-pager says:

1. China 1,275 tcf
2. Argentina 774
3. Mexico 681
4. South Africa 485
5. US 482
6. Australia 396
7. Canada 388

Big difference is US ranking/estimate.

Second one says EIA, as in U.S. Energy Information Agency, so I guess you gotta go with that one.  

Or is this just weird mistake by FT?

No mistake.  After some quick Googling it turns out the EIA said 862tcf a year ago and says 482tcf now, reducing its estimate of recoverable shale gas by 42%!

Betcha some industry experts refute that!

Will have to see where that number goes over time.

GM casts its global lot with Shanghai Automotive

Favorite subject of mine, that I highlight in the current brief: the creation of what fmr IMB CEO Sam Palmisano calls "globally integrated enterprises."

GM links itself up with Shanghai Automotive Industry Corp to create a GIE that looks to take on Honda, Tata, VW, etc on a global basis while cementing GM's participation in China's booming domestic car market.

GM's tie-up with SAIC is considered one of the region's most successful. GM and its partners in China have a 14% share of the auto market, the world's largest. The company's sales volumes have grown 41% since 2009.

GM chief exec: "SAIC is the principal relationship that we have around the globe now [italics mine] and we expect that to be the case in the future."

GM and SAIC are now jointly eyeing exports to LATAM and eventual production there.

Amazing stuff, as GM impresses with its bold global vision and execution.

WPR's The New Rules: In Globalized World, Time Is on America's Side

Second-to-last column at WPR.

There is a popular tendency to characterize globalization as an elite-based conspiracy or as something imposed by greedy outsiders upon unsuspecting native populations, hence the enduring belief in the possibility of its systemic reversal. In truth, the spread of modern globalization reflects a bottom-up demand function, not a top-down supply imposition. People simply crave connectivity -- in all its physical and virtual forms -- as well as the freedom of choice that it unleashes. This simple truth is worth remembering when we contemplate America’s global role in the decades ahead.

Read the entire column at World Politics Review.

Chart of the Day: China's capital stock compared

From the Economist, with arguments not exactly settled by the comparison.

Reality/fear is that too much of China's growth is via capital investment. Compared to other economies, that part seems undeniable.  But like with India, we're talking continental-sized economies where hundreds of millions of rural poor are still left behind, so investment is clearly in order for a very long time.

The per capita comparison, however, shows how China remains a poor country by modern standards.

Another interesting tidbit:

China's rising investment and falling consumption as a share of GDP are commonly portrayed as an economic anomaly. Yet this pattern is normal in a rapidly industrializing country. In a traditional agricultural economy farmers consume most of their income, but once industrialisation gets under way a rising share of national income goes to owners of capital, who invest it in factories and the like. Investment rises as a share of GDP, and consumption falls. During their peak periods of industrialisation, South Korea and Japan saw an even sharper rise in investment relative to GDP than China has seen over the past 20 years.

You can call this the glass-half-full argument on China's long-term growth, and it's just as true or no more false than the half-empty variant:  coastal China must shift from extensive to intensive growth, and there the labor crunch and demographic aging will force evolutions very similar to a developed economy.  But interior China is another whole economy ready to take off - again - like China Coastal has for 2-3 decades. Of course, not being coastal will make this a far harder task in terms of attracting FDI and the manufacturing it enables.

But that just speaks to a certain economic slowdown that is inevitable.  We have a strong West Germany economy (Coastal China) being forced to bring along/accommodate/prioritize somewhat an East Germany (interior China).  Coastal China/Beijing will do this for political stability reasons, but slow down the overall economy it will - even as it assured plenty of long-term growth and development (all that urbanization, for example).

Ah, the complexity of modern China.

The future of American agriculture has arrived

Been briefing and writing about this one going back to about . . . I wanna say 2006.  I remember the slide I had my old slidemaster Bradd Hayes generate for what was still the Blueprint for Action brief.

Here is the reality as captured in the piece: US demand flattening, China's skyrocketing - especially for dairy (it's a growing middle class, mind you).

The head of California Dairies: "We're in an evolution. No question."

Markets "once treated as an afterthought" are now "reshaping the relationship between rural America and the rest of the world."

What are you really exporting when you export milk - even milk powder?  Water.  Whether or not you take it out for packanging, a whole lot of water goes into milk - directly and indirectly.

That's why the Kiwis have been in the lead.

It wasn't just the geographic proximity but the excess of water on a per capita basis (New Zealand has about 5 times the water it needs).

California ag exports to China and HK are up 85% since 2008: "All of a sudden, milk powder has become this valuable commodity." The sent this year's Miss California to China to hawk pistachios.

Amber waves of grain, my friends, in a back-to-the-future development that marks the resurgence of the economy - with ag and energy in the lead.

And yeah, both are plenty high-tech.

Hollywood gets itself some Chinese

Old Jack Welch bit: you can't succeed in global economy without succeeding in China.

My addendum: you can't succeed in China unless you're Chinese.

Solution: Get yourself some Chinese.

Hollywood has seen overseas B.O. rise from a tiny share to well over half in recent years. More specifically, while the US market is flat, burgeoning middle class China's is booming.

WSJ sees two different markets, but I already see a Chinese market that, with incredible restrictions on the number of US imports, is already half-synched to our blockbuster mode.

You know about Spielberg already turning toward China for future financing.  This piece talks about Disney doing the same.  Co-productions will become the norm, connecting talent with bucks (literally).  Yes, nothing will change the flops-v-tentpoles ratio. Indeed, it is likely to rise in the short-run, but Hollywood is very adept at figuring these things out, much like Japan does in its very clever global marketing of anime.

In the meantime, we be treated to the glorious hysterics of the "Red Dawn" remake. [The Chinese dodged a movie bullet there, as the original script had them invading, but now we get the fantastically implausible depiction of North Korea doing the same - much like a recent (pretty good) video game "Homefront."  The kicker: MGM rebooted the script so as to not lose out on the growing Chinese box office.] But, over time, this will be a good collaboration and a bilateral image reshaper that benefits the planet.

WPR's The New Rules: Globalization in a Post-Hegemonic World

My third-to-last column at WPR:

International relations experts are pretty much down on everything nowadays. America, we are told, is incapable of global leadership: too discredited overseas, too few resources back home, too little will -- period. For a brief moment there, while China held up the global economy during the recent financial crisis, much credence was given to the notion that we were on the verge of a Chinese century. But that popular vision has also waned surprisingly quickly, and now the conventional wisdom centers on China’s great weaknesses, challenges and overall brittleness. Amazingly, where we spoke of a U.S.-China “G-2” arrangement just a few short years ago, now there is a sense that no one is in charge.

Read the entire column at World Politics Review.

Fascinating scandal with potential to destroy much more than the politician

Fascinating twist to an already overwrought bit of political drama. Bo Xilai was the poster boy for analysts who predicted a Maoist, right-wing reaction to the growing sense among the princeling/coastal crowd that another wave of reform/liberalization is due (what "Uncle Wen" has been peddling for a while now).

While we will never know how he would have fared, absent the personal issues, in any such struggle, I still think he was going down no matter what and that this set of circumstances just made it easy.

But what's fascinating now is the extent of his privileged family's misdeeds.  This is the kind of stuff that opposition parties jump all over, but in China, because it's all one big Party, it must be simultaneously purged and condemned publicly and shoved under the rug. I think the awkwardness of this whole show may prove to be a turning point on thinking within the Party that ultimately it needs to create its own acceptable opposition before circumstances force it in a far more destabilizing fashion.

No, I'm not moving off my timetable of the late 2020s (although I'm always open to being pleasantly surprised). I'm just calling this out as a potential milestone on that path.

WPR's The New Rules: Hubris Drives Mistrust in U.S.-China Relations

Writing in Foreign Affairs this month, Henry Kissinger opined that, when it comes to the future of Sino-American relations, “conflict is a choice, not a necessity.” Those are some serious words from one of history’s all-time realists, but more important than his analysis is the fact that he even felt the need to issue that public statement regarding these two ultimately codependent superpowers. A trusted part-time adviser to President Barack Obama, Kissinger knows he has the president’s ear on China, the target of this administration’s recently announced strategic military “pivot” toward East Asia.

Read the entire column at World Politics Review.

Wikistrat post @ CNN-GPS: New global sources of demand

Editor’s Note: The following piece, exclusive to GPS, comes from Wikistrat, the world's first massively multiplayer online consultancy.  It leverages a global network of subject-matter experts via a crowd-sourcing methodology to provide unique insights.

When Americans are warned that the “era of cheap credit is over,” we’re really being told that the inherent advantage of owning the world’s reserve currency is coming to an end. No, it won’t happen overnight, because China’s renminbi is still far from becoming a serious rival.

But the end is coming all right, and it’ll make all that Thomas Friedman hyperbole about a “flat world” a whole lot more real. America simply won’t have the advantage of being able to float debt - of all kinds - as easily as we did in the past, which means we’ll need to compete more intensely on the price and quality of our goods.

The primary driver here is China’s need to shift from a super-saving economy to a super-consuming economy. It’s gone about as far as it can go with export-driven growth, and now it needs to turn on its domestic consumption big-time, but doing that means China’s willingness to finance the debts of others will decrease - thus the end of cheap credit.

So, accepting all that, what can America anticipate when it comes to new sources of demand in the global economy?  What are some of the hot goods and services of the coming years?  We asked Wikistrat's global community of strategists for some ideas, and here’s what they chose to highlight:

Read the entire post at CNN's GPS blog.

So why the strategic mistrust?

WSJ story and chart about how "Chinese applicants flood U.S. graduate schools."

 Of interest in the analysis:

The rate of growth in China is due in part to a concerted effort by some U.S. schools to attract Chinese studens.  The thinking, say school administrators, is that international student who stay in academia will connect U.S. schools with new research partners, while those entering the corporate world may become clients of business schools' executive education programs.

Would that the Pentagon was this strategic in its thinking.

No, I'm not just talking about Chinese officers in our professional military educational institutions.  I'm talking about purposefully seeking to raise future partners instead of indulging in this feel-good strategic "pivot" that is already being handled by arms exports to China's neighbors.

Amidst all that, we should be extending a hand - not a missile shield.

WPR's The New Rules: Obama's Missile Defense Fantasy a Pentagon Dream Come True

Given this administration’s resurging plans for regional missile defense schemes in both Europe and Asia, President Barack Obama’s recent open-mike admission to Russian President Dmitry Medvedev that he will have more freedom in his national security decision-making once he wins re-election is not a comforting thought. For a guy who promises “a world without nuclear weapons,” Obama seems awfully intent on incentivizing both Russia and China to field some more.

Read the entire column at World Politics Review.

Wikistrat post @ CNN-GPS: Three visions for America

Editor’s Note: The following piece, exclusive to GPS, comes from Wikistrat, the world's first massively multiplayer online consultancy.  It leverages a global network of subject-matter experts via a crowd-sourcing methodology to provide unique insights.

The U.S. economy is most definitely in recovery mode, but it’s the sort of recovery one experiences after a scary heart attack.  There is little confidence in being able to go uptempo. Fears persist about slipping into a permanent sort of disability.

Worse, many are resigned to the fact that big structural problems such as health care, tax reform, the federal deficit and education remain unaddressed by a political system that remains fiercely divided.

So America finds itself in a funny position: Clearly getting better and doing better than most of the West but almost completely lacking in self-confidence.  If this is “morning in America,” then most citizens have hit their snooze button.

This week’s Wikistrat’s drill explores this ambivalence in the face of mounting good economic news, asking our global community of experts to present their arguments for the U.S. economy’s possible mid-term (3-5 year) paths ahead.  We’ll start with the optimism and then let the darker thoughts pile up - much like most Americans today.

Read the entire post at CNN's GPS blog.

There is no such thing as "Asian values," just pre-development ones

Really cool column by Patti Waldmeir on Asia (despite the weird lack of noun-verb agreement).  She is FT's Shanghai bureau chief.

Gist (well captured in title): "China's young workforce warm (sic) to west's work-life balance." [Online version of title cuts "workforce," so agreement works there.  Picky me, I know.]

Starts with recollection of asking founder of BYD battery/carmaker what he did in his free time.  He scoffed at the notion that such a thing existed, and then lectured her on why China would surpass the West because its people had no such conception.

True for the "rise"-initiating generation, but not true to the kids who follow:

But that was three years ago, and three years is a long time in China. Since then, the younger generation of Chinese workers have (sic) begun to discover the joys of sloth. Leisure - which has had a bad rap on the mainland - is making a comeback.

Why? Overwork, plus increasingly long commutes.

Upshot:  according to the head of GM in China, the post-80s generation is increasingly into the the whole life-work balance, creating all manner of HR challenges (none of them new to GM, please).

A headhunter says more and more of his applicants want to work at places that respect the weekend: "These overseas trends are coming into China now."

Of course, if you're trying to build up domestic consumption, you need to encourage this mindset.  Plus, in an economy that seeks to prioritize innovation, all work and no play make Jin a dull boy.

But the larger point, just explored in a great Master Narrative proposed by a Wikistrat analyst in our ongoing "China Hits the Great Wall" simulation, is that China may well confound us by getting to the point of wealth and then disappointing all the "realists" out there who imagine the country's only path to be maximizing "national power" (whatever that is). Especially when you factor in the rapid demographic aging, we are more likely to get a China that goes straight to a Nordic socialist-heavy, more admirable lifestyle package than mindlessly replicating the Kaiserian Germany push toward great-power war (crazy talk, I know, for a pol-mil analyst who wants to be taken "seriously" by Washington).

But there you have it: far faster than it appeared in Japan, we see the work-life balance monster rear its relaxed head.

WPR's The New Rules: Make China the Face of the World Bank

When Robert Zoellick recently announced that he won’t seek a second term as president of the World Bank, representatives of numerous emerging-market countries issued a flood of statements decrying America’s 66-year lock on the position. Meanwhile, the Chinese went out of their way within the organization to express their firm desire to have a commanding say in who succeeds Zoellick. Insiders are predicting that an American will still win the spot and that the Chinese simply want to exercise a showy veto over the proceedings. That would be too bad, because there are a host of good reasons why Washington should presently burden Beijing with the job of running the World Bank.

Read the entire column at World Politics Review.

West Hemisphere way behind on integrating intra-regional trade

Per the 10 March Economist editorial on Latin America's growing fears about being recaptured by China as just a source of commodities (deindustrialization) and per the recent Wikistrat sim on North America's Energy Export Boom where we discussed, in one master narrative, the notion of NAFTA using the lure of cheaper and cleaner energy to re-energize the Free Trade Area of the Americas initiative.

Now, you have to understand that this chart is misleading, because it counts intra-EU trade while not counting interstate trade within the multinational union known as the US.  If the stats were equalized on that scale, then the NorthAm numbers would be unreal.

But larger point about Latam's numbers being small (and presumably the W Hem numbers being commensurately low) is valid.  The US and the rest have not made the regional trade integration effort that is possible here, as South America is beginning to recognize its mistake is not pursuing FTAA.

People will paint this as de-globalization, but it's not a binary choice.  Globalization tends to push regions to up their regional integration for all sort of reasons, the primary one being the title of the editorial here: "unity is strength" in trade negoations.

But the long-term advantage here is substantial: if you want to grow, then you want to have high trade flows with faster-growing neighbors first and foremost.  China is doing that in SE Asia but US is not doing the same in W Hem, thus the strategic impulse now to go after things like reviving FTAA.